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More from the contrarian view on China. And this would certainly light a fire under the global economy. Citic, CIC and Shenyin & Wanguo Securities Co. say the Shanghai Composite is due for a serious second half rally as expectations of a hard landing have become too pervasive (via China Daily):

“The Shanghai Composite Index’s 6.2 percent retreat this quarter sent the gauge to 11.6 times estimated profit, data compiled by Bloomberg show. It took the global financial crisis and a decline in China’s growth rate to a seven-year low of 6.8 percent to push valuations this low in November 2008. The Shanghai gauge rebounded 49 percent in the next six months.

CITIC Securities Co and China International Capital Corp, which predicted the drop this quarter, say the market will rally in the second half as inflation peaks and the government sustains the economic expansion by easing credit. Even Nouriel Roubini, the New York University economist who says China may face a “hard landing” after 2013, expects growth of at least 8.8 percent in 2011 and 2012.

“The market has basically priced in a very pessimistic outlook for the economy,” said Ling Peng, chief strategist at Shanghai-based Shenyin & Wanguo Securities Co, ranked China’s most influential research provider by New Fortune magazine last year. “A hard landing of the economy is very unlikely,” he said, forecasting that the Shanghai index will advance as much as 15 percent by the end of the year to about 3150.

…CITIC Securities recommended shares of property developers and cement companies because of the government’s housing measures. China’s biggest brokerage, which turned “positive” on the nation’s stocks in a June 20 report after being “cautious” since April, has a six-month target of 3500 for the Shanghai index.”

3500 is approximately a 30% rally from here and would represent the highest levels since the middle of 2009 after the Shanghai’s incredible 100%+ rally off the 2008 lows. Of course, this index has tended to lead other equity markets as China’s economy remains the single most important leg in the global economic chair. Although I’ve been bullish just recently I have to think the macro evidence leads one to conclude that you should probably take the under on 3500. Range bound is probably more like it. And that means my approach won’t change much. This is still a traders market.

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